The Time Has Come For An “All-In” Fee

Ben Raven - Director
The FCA confirmed this week it will introduce an all-in fee for the fund management industry.
What the regulator wants
The FCA wants to improve transparency and address “weak” price competition within the industry. A “standardised template of costs and charges” will be introduced and significantly, this template will include an estimate of transaction charges. Transaction charges do NOT currently have to be included in the Ongoing Charges Figure (OCF) published by fund managers, and this leads to an incredibly misleading representation of the true cost of owning a fund for a 12-month period. For more information about how much these additional transaction charges can amount to, see our previous blog entitled “Active Funds; why does nobody mention trading charges?”.
The FCA confirmed this week it will introduce an all-in fee for the fund management industry.
What the regulator wants
The FCA wants to improve transparency and address “weak” price competition within the industry. A “standardised template of costs and charges” will be introduced and significantly, this template will include an estimate of transaction charges. Transaction charges do NOT currently have to be included in the Ongoing Charges Figure (OCF) published by fund managers, and this leads to an incredibly misleading representation of the true cost of owning a fund for a 12-month period. For more information about how much these additional transaction charges can amount to, see our previous blog entitled “Active Funds; why does nobody mention trading charges?”.
Why they want it
The FCA has concluded that neither active nor passive funds outperform their benchmarks after their (all-in) costs and has found examples of “poor value for money products” in both active and passive strategies. Going hand in hand with this is the FCA’s reiterated concern that investor “awareness and focus on charges is mixed and often poor” and that there are a “significant number of retail investors who are not aware” of all the charges they pay for their asset management service.

What will happen to fund managers

Fund managers who have historically included the bare minimum within their OCFs will now need to include an estimate for transaction charges. This will result in drastic increases in the average manager’s OCF. Our research shows us that an average OCF for a traditional active manager will be in the region of 1% however the average trading charges on top of this can be as high as 2.5% (see our blog on trading charges). Therefore, some managers will be publishing a new OCF that is more than twice as high as their previous one.
Fund managers who have historically included the bare minimum within their OCFs will now need to include an estimate for transaction charges. This will result in drastic increases in the average manager’s OCF. Our research shows us that an average OCF for a traditional active manager will be in the region of 1% however the average trading charges on top of this can be as high as 2.5% (see our blog on trading charges). Therefore, some managers will be publishing a new OCF that is more than twice as high as their previous one.
Tavistock’s Approach
Since inception Tavistock Wealth have constructed our flagship ACUMEN Portfolio range in the most cost and tax efficient manner possible. Our strategy is to actively trade a basket of ETFs and this is done via a UCITS compliant Open-Ended Investment Company (OEIC) fund structure. An OEIC structure means investors are exempt from CGT upon rebalancing the portfolio, exempt from stamp duty within the portfolio and are also immune to any dealing costs involved with purchasing ETFs directly through a platform. Our asset allocation is based on decades worth of backward and forward-looking data, and as such is not subject to the level of trading that one would typically associate with an active manager. Even when trades are placed, owing to the OEIC structure these trades are carried out in a fund structure which does not expose clients to significant additional transaction charges.
Since inception Tavistock Wealth have constructed our flagship ACUMEN Portfolio range in the most cost and tax efficient manner possible. Our strategy is to actively trade a basket of ETFs and this is done via a UCITS compliant Open-Ended Investment Company (OEIC) fund structure. An OEIC structure means investors are exempt from CGT upon rebalancing the portfolio, exempt from stamp duty within the portfolio and are also immune to any dealing costs involved with purchasing ETFs directly through a platform. Our asset allocation is based on decades worth of backward and forward-looking data, and as such is not subject to the level of trading that one would typically associate with an active manager. Even when trades are placed, owing to the OEIC structure these trades are carried out in a fund structure which does not expose clients to significant additional transaction charges.
We have always quoted our OCF inclusive of the underlying ETFs, our Annual Management Charge, all necessary operating expenses and the running costs of the OEIC structure.
Consequently, we believe our ACUMEN range to be amongst the most reliable methods of providing the “all-in” fee that the regulator is looking for.
This investment Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person. Source of data: Tavistock Wealth Limited, Professional Adviser and Citywire.

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